Tax year ending 5 April XXXX

Arrangement to set off company CIS deductions during the year

There is an arrangement for subcontractor companies that

- have CIS deductions made from their own income, and
- make regular payments to HM Revenue & Customs as employers or contractors.

As employers or contractors, companies make monthly or quarterly payments to HM Revenue & Customs of

- PAYE and NICs due from their employees
- CIS liabilities due from their subcontractors
- Student Loans.

Under this arrangement, companies should simply reduce the amount of their PAYE, NICs, Student Loans and CIS payments to HM Revenue & Customs, by the amount of the CIS deductions made from their own income.

Recording CIS deductions set off

Companies can use the enclosed form CIS132 to keep the required record of the amounts of CIS deductions set off against payments due, during the tax year.

Form CIS132 lists the key points of the arrangement for companies.

Where CIS deductions are greater than the payment due for PAYE, NICs, Student Loans and CIS liabilities in a particular month or quarter, excess deductions are

- carried forward to set against future payments in the same tax year
- considered for refund or credit, only after the annual P35 (showing relevant CIS details) has been delivered to us.

There are examples showing how the arrangement works over the page.

If you need more information...

- Phone our Helpline on 0845 366 7899 if you need to know more about how the arrangement will affect you.
- Guidance is also available from our website at www.hmrc.gov.uk/cis

Please turn over to see the examples Examples of how the arrangement works

Example 1 Jones, a contractor in the construction industry, • pays £5,000 in the tax month ending 5 October 2006 to Smith Ltd, a company that is registered for payment under deduction • deducts £900 from the payment • gives Smith Ltd – a payment and deduction statement showing the gross amount of payment, and the amount deducted – a net payment of £4,100.

The company Smith Ltd • does not pay any subcontractors in the tax month ending 5 October 2006 • deducts a total of £4,000 PAYE and NICs when it pays its regular employees in that tax month • is therefore due to make a payment to HM Revenue & Customs of £4,000 for the month.

Under the arrangement, Smith Ltd sets off the £900 CIS deduction from its income, against the £4,000 payment it is due to make. Smith Ltd therefore makes a reduced payment for the month of £3,100 to HM Revenue & Customs.

Example 2 Brown Ltd is a company that is registered for payment under deduction. CIS deductions of £2,000 are made from the income it receives for construction work, in the tax month ending 5 December 2006.

Brown Ltd, in the same tax month, • deducts £1,000 from the payments it makes to its own subcontractors registered for payment under deduction • deducts £500 PAYE and NICs from the pay of its regular employees • is therefore due to make a payment to HM Revenue & Customs of £1,500 for the month.

Under the arrangement, Brown Ltd has £2,000 of CIS deductions available to set off, and decides to do so against the £1,500 payment due. Brown Ltd therefore • makes no payment for the month to HM Revenue & Customs • sends a 'Nil Payslip' to the HM Revenue & Customs Accounts Office.

The excess CIS deductions of £500 which have not been used in the tax month, can be set off against Brown Ltd's payment of PAYE, NICs, Student Loans and CIS liabilities for the tax month ending 5 January 2007, and any unused balance in any of the following months until the end of the tax year at 5 April 2007.